Rather than accept being a niche PC maker, Steve Jobs is transforming his baby into a high-end consumer-electronics and services company.

From the word go nearly two years ago, sales of Apple Computer's IPod MP3 player have been music to the PC maker's ears. Never has that been more true than on July 16, when Steve Jobs & Co. stunned analysts by announcing they had sold 304,000 players in the company's third quarter, nearly four times most analysts' expectations. The reason: Customer demand soared in May after Apple launched its third-generation iPod, which stores 7,500 songs in a player that's lighter than two CDs -- and is compatible with Microsoft's Windows operating system. Apple's flagship retail store in New York City's Soho section stayed open until 11 p.m. the day of the launch just to meet the demand.

"It's a paradigm shift at the company," says Charles Wolf, an analyst at investment firm Needham & Co. and a longtime Apple watcher (who owns shares of Apple stock). "They are redefining what kind of company they are." Indeed, the release of iPod for Windows last August established the demarcation line in an extraordinary strategic change for Apple, a company that over the past two decades has steadfastly refused to loosen its control over the creation, manufacturing, or distribution of its products.